Budget 2023: “Efficient spending is paying dividends”

After presenting the Union Budget, finance minister Nirmala Sitharaman interacted with a group of mediapersons and highlighted the government’s resolve to make the exemption-less new tax regime an attractive option for taxpayers. She also discussed the steep hike in capital expenditure, inflation concerns, and the goal to make India a Rs 5-trillion economy, among other issues. Edited excerpts:  

Q. Does the increase in the income tax rebate limit to Rs 7 lakh under the new regime mean the end of exemptions/various incentives for investments and savings?

A. We want to make the new tax regime, which is without exemptions, attractive enough for people to think that this will be the best option for them because it gives them better rates. It also doesn’t make the compliance a burdensome exercise. The rates can be so low that one benefits by paying lesser tax, and those exemptions that they could’ve otherwise gained from would’ve probably resulted in the net amount being the same. However, if there are people who think that being under the old exemption regime benefits them, they are welcome to continue with the same.

Q.  What percentage of taxpayers moved to the new tax regime in the last assessment year?

For companies, over 60% of our corporate tax is coming from the exemption-free tax regime. We are hopeful that this scheme for individual taxpayers will ensure that the majority shift to the new regime.

Q. What was the need to lower the effective tax rate for high-income groups?

Tax rates in our country were amongst the highest, even more than in some developed countries. They were introduced as interim measures, and that has now been reduced so that the highest effective tax rate becomes 39%. The move is towards lower rates but fewer avoidance measures and exemptions.

Q. There is a big gamble in terms of the hike in capital expenditure. Are you sure that this will trigger job creation?

When projects are undertaken and money is utilised, how would they be completed without manpower and jobs? No project can be completed without human intervention, and so jobs are being created on the ground.

Q. The revised estimate for capex in FY23 is slightly lower with a big jump for FY24. What gives the government confidence that more of it will be well-spent?

The revised estimates are around 97-98% of the Budget estimates, there is a slight deviation. This is mainly on the state capital expenditure, which is falling short of the Rs 1 ltrillion figure (capex loan). The Central capital expenditure will exceed the Budget estimates. Some portions of the state capital investment scheme have reform conditions and some states haven’t been able to meet some of the conditions. Therefore, the shortfall is on the states’ side, not the Centre, and about 76% of the former’s expenditure is likely to be spent, according to our estimates.

The increments are in 4 clear areas – firstly, Railways, which has enough projects to absorb the additional capital expenditure; then highways, which has adequate projects running; third, states, which may pose a challenge but they are gearing up now.

Q. The fiscal deficit glide path that you have given is 4.5% by 2025-26. Does it also indicate your confidence in continuing tax buoyancy in the coming years?

As we’ve seen in the GST collection figures, direct taxation buoyancy has also been observed in the coming year. To the credit of our team, there has been a robust management of macroeconomics. That bears an impact. With revenue expenditure, disinvestment, banking, etc, all of us have together worked in such a way that you can earn more through tax avoidance-related measures and bringing more people into the tax net. Similarly, prudent ways of effective expenditure without cutting down expenditure are all ways in which you are making money mean more. For every rupee that you spend, you get better returns. Efficient management has an important role to play here.

Q.  While calculating the fiscal math of FY24, how did you assume disruptive variables like crude prices, along with China unlocking and its impact on commodity prices?

There’s no part of the Budget mathematics that has a crude price number as an input in any spreadsheet. There is no direct subsidy on any petroleum product, unlike fertiliser prices or MSP. The latter have a direct impact on the Budget. Petrol price would have an impact only if it triggers a major change in the tax system. Otherwise, petrol and diesel prices do not directly affect our budgeting. The only assumption we are making is that there will be no subsidies on petrol and diesel.

Q. You spoke about the review of regulations by financial sector regulators in the Budget speech. Can you elaborate?

Regulations are brought in while the regulators serve their purpose. When the economy changes, regulators review them as a part of regular exercise. It is time to take up a comprehensive review. If you recall, RBI had done the same in 2020 after forming a committee and had come out with a report in 2021.

Q. With real interest rates returning to positive territory in the last few months with the RBI hiking rates, do you see the borrowing costs for companies rising?

The increase in borrowing over the previous year is 8%. The economy has grown at a nominal rate of 15% in the same period. This is a level of borrowing that would not lead to any incremental crowding out. As a percentage of the size of the nominal economy, the total gross borrowing will actually be lower in 2023-24 than in 2022-23. So incremental crowding out is not a significant issue and would not lead to any impact on borrowing costs in the private sector.